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How is climate change influencing prices and output?

Author

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  • Narayan, Seema
  • Kumar Narayan, Paresh
  • Prasad, Rahul

Abstract

This paper hypothesizes that climate change shapes Fiji’s prices and output. Using a macro-model with monthly data (2002–2022), we find strong evidence that rainfall, droughts, and cyclones raise inflation, while output remains insensitive. The economic magnitudes are large: a one-standard-deviation increase in log rainfall contributes 0.20 percentage points (pp) (or 83% of the mean) to monthly inflation. Event months are more damaging to inflation: cyclones +0.595 pp (or 245% of the mean); total disasters +0.485 pp (or 200% of mean); and droughts +0.432 pp (or 178%). Remittances, despite been a fiscally important part of Fiji’s economy, provide no cushion to inflationary pressures. We conclude that climate change operates chiefly as a supply-side inflationary shock, suggesting the need to integrate climate risks into Fiji’s fiscal and monetary policy frameworks.

Suggested Citation

  • Narayan, Seema & Kumar Narayan, Paresh & Prasad, Rahul, 2026. "How is climate change influencing prices and output?," Economic Analysis and Policy, Elsevier, vol. 92(C), pages 545-555.
    • Handle: RePEc:eee:ecanpo:v:92:y:2026:i:c:p:545-555
    DOI: 10.1016/j.eap.2026.05.023
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    JEL classification:

    • E31 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles - - - Price Level; Inflation; Deflation

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